- Dubai’s long-term economic prospects remain solid
- GDP growth will slow to around 6% in 2009
Standard & Poor’s Ratings Services said it revised its outlook on the ratings of six Dubai-based Government-Related Entities (GREs) to negative from stable. The entities are: DIFC Investments LLC, DP World Ltd (DPW), Dubai Holding Commercial Operations Group LLC (DHCOG), Dubai Multi Commodities Centre Authority (DMCC), Jebel Ali Free Zone (JAFZ), and JAFZ Sukuk Ltd. At the same time, all ratings on these entities were affirmed.
“The outlook revision reflects the impact of the difficult global macroeconomic and financing environment on the Emirate of Dubai (not rated), to which the ratings on these six entities are directly linked,” said Standard & Poor’s credit analyst Farouk Soussa. “The medium-term risks to Dubai’s economy have, in our view, increased as demand in the all-important real estate sector shows clear signs of abating, raising the possibility of a sharp correction in the real estate market, and an associated contraction in development and construction,” he added.
The impact on Dubai’s overall economy would be significant as construction and real estate account for almost half of Dubai’s GDP. Dubai’s position as a global commercial and financial hub also exposes it to the risk of a prolonged downturn in global trade and financial intermediation. We expect that GDP growth will slow to around 6% in 2009, from an average of 15% in recent years.
Dubai’s long-term economic prospects remain solid as it has positioned itself well to benefit from the eventual resurgence of global and regional commerce, finance, and tourism. Its position within the United Arab Emirates is also supportive given the strength of the federation’s external balances and currency.
The negative outlook on the six GREs reflects the worsening economic prospects of the Emirate of Dubai, to which all six ratings are directly linked. “The ratings will be lowered should the economic slowdown be deeper and longer than currently expected, or if liquidity concerns raise financing risks to the governments and its GREs,” said Mr. Soussa.
In the same time, Fitch has cutted its ratings on two companies tied to the Dubai government.
The credit rating firm says it made the downgrades Wednesday because of what it called the emirate’s worsened economic outlook and the likely pressure this will put on the Gulf city-state’s finances.
The downgrades affect Dubai Holding Commercial Operations Group (DHCOG) and state-owned utility Dubai Electricity and Water Authority (DEWA).
Fitch cited poor transparency in cutting the ratings, though it acknowledges the benefit of continued government support for the companies.
Concerns have grown about Dubai’s debt level in light of the world financial crisis.
